Pradeep
Kumar Biswas & Ors Vs. Indian Institute of Chemical Biology & Ors
[2002] Insc 207 (16
April 2002)
R.C.
Lahoti & Doraiswamy Raju R.C. Lahoti, J.
(for
self and on behalf of Doraiswamy Raju, J.) We have had the advantage of reading
the judgment proposed by our learned sister Ruma Pal, J.. With greatest respect
to her, we find ourselves not persuaded to subscribe to her view overruling Sabhajit
Tewary's case and holding Council for Scientific and Industrial Research (CSIR)
'the State' within the meaning of Article 12 of the Constitution. The
development of law has travelled through apparently a zig-zag track of judicial
pronouncements, rhythmically traced by Ruma Pal, J. in her judgment. Of
necessity, we shall have to retread the track, for, we find that though the
fundamentals and basic principles for determining whether a particular body is
'the State' or not may substantially remain the same but we differ in
distributing the emphasis within the principles in their applicability to the
facts found.
We
also feel that a distinction has to be borne in mind between an instrumentality
or agency of 'the State' and an authority includible in 'other authorities'.
The distinction cannot be obliterated.
Article
12 of the Constitution reads as under:
"12.
In this part, unless the context otherwise requires, "the State"
includes the Government and Parliament of India and the Government and the
Legislature of each of the States and all local or other authorities within the
territory of India or under the control of the Government of India." This
definition is for the purpose of attracting applicability of the provisions
contained in Part III of the Constitution dealing with fundamental rights. It
is well-settled that the definition of 'the State' in Article 12 has nothing to
do with Articles 309, 310 and 311 of the Constitution which find place in Part
XIV. Merely because an entity is held to be the State within the meaning of
Article 12, its employees do not ipso facto become entitled to protection of
Part XIV of the Constitution.
Dr.
B.R. Ambedkar explaining the scope of Article 12 and reason why this Article
was placed in the Chapter on Fundamental Rights so spoke in the Constituent
Assembly :
"The
object of the fundamental rights is two-fold. First, that every citizen must be
in a position to claim those rights. Secondly, they must be binding upon every
authority I shall presently explain what the word "authority" means
upon every authority which has got either the power to make laws or the power
to have discretion vested in it. Therefore, it is quite clear that if the
Fundamental Rights are to be clear, then they must be binding not only upon the
Central Government, they must not only be binding the Provincial Government,
they must not only be binding upon the Governments established in the Indian
States, they must also be binding upon District Local Boards, Municipalities,
even village panchayats and taluk boards, in fact, every authority which has
been created by law and which has got certain power to make laws, to make
rules, or make bye- laws.
If
that proposition is accepted and I do not see anyone who cares for Fundamental
Rights can object to such a universal obligation being imposed upon every
authority created by law then, what are we to do to make our intention clear?
There are two ways of doing it. One way is to use a composite phrase such as
"the State", as we have done in article 7; or, to keep on repeating
every time, "the Central Government, the Provincial Government, the State
Government, the Municipality, the Local Board, the Port Trust, or any other
authority". It seems to me not only most cumbersome but stupid to keep on
repeating this phraseology every time we have to make a reference to some
authority. The wisest course is to have this comprehensive phrase and to economise
in words".
(1948
(Vol.VII) CAD 610) [emphasis supplied] Thus the framers of the Constitution
used the word "the State" in a wider sense than what is understood in
the ordinary or narrower sense. So far as 'other authorities' are concerned
they were included subject to their satisfying the test of being 'within the territory of India' or being 'under the control of the Government of India'.
It is settled that the expression 'under the control of the Government of
India' in Article 12 does not qualify the word 'territory'; it qualifies 'other
authorities'.
The
terms 'instrumentality' or 'agency' of the State are not to be found mentioned
in Article 12. It is by the process of judicial interpretation nay, expansion -
keeping in view the sweep of Article 12 that they have been included as falling
within the net of Article 12 subject to satisfying certain tests. While
defining, the use of 'includes' suggest what follows is not exhaustive. The
definition is expansive of the meaning of the term defined. However, we feel
that expanding dimension of 'the State' doctrine through judicial wisdom ought
to be accompanied by wise limitations else the expansion may go much beyond
what even the framers of Article 12 may have thought of.
Instrumentality,
Agency, Authority meaning of It will be useful to understand what the terms -
instrumentality, agency and authorities mean before embarking upon a review of
judicial decisions dealing with the principal issue which arises for our
consideration.
Black's
Law Dictionary (Seventh Edition) defines 'instrumentality' to mean "a
means or agency through which a function of another entity is accomplished,
such as a branch of a governing body." 'Agency' is defined as "a
fiduciary relationship created by express or implied contract or by law, in
which one party (the agent) may act on behalf of another party (the principal)
and bind that other party by words or actions." Thus instrumentality and
agency are the two terms which to some extent overlap in their meaning; 'instrumentality'
includes 'means' also, which 'agency' does not, in its meaning. 'Quasi-
governmental agency' is "a government sponsored enterprise or Corporation
(sometimes called a government-controlled corporation)". Authority, as
Webster Comprehensive Dictionary (International Edition) defines, is "the
person or persons in whom government or command is vested; often in the
plural". The applicable meaning of the word "authority" given in
Webster's Third New International Dictionary, is 'a public administrative
agency or corporation having quasi-governmental powers and authorized to
administer a revenue-producing public enterprise'. This was quoted with
approval by Constitution Bench in RSEB's case (infra) wherein the Bench held
"This dictionary meaning of the word "authority" is clearly wide
enough to include all bodies created by a statute on which powers are conferred
to carry out governmental or quasi-governmental functions. The expression
"other authorities" is wide enough to include within it every authority
created by a statute and functioning within the territory of India, or under
the control of the Government of India; and we do not see any reason to narrow
down this meaning in the context in which the words "other
authorities" are used in Art.12 of the Constitution". (emphasis
added) Commissioner, Pondicherry and Anr. (1962) Supp.1 SCR 981 and and
Anr. (1964) 1 SCR 656 it is settled that Article 12 of the Constitution has to
be so read :
"12.
In this part, unless the context otherwise requires, the 'State' includes (i)
the Government and Parliament of India, (ii) the Government and the Legislature
of each State, (iii) (a) all local or other authorities within the territory of
India, (b) all local or other authorities under the control of the Government
of India." The definition of the State as contained in Article 12 is
inclusive and not conclusive. The net of Article 12 has been expanded by
'progressive' judicial thinking, so as to include within its ken several
instrumentalities and agencies performing State function or entrusted with
State action. To answer the principal question in the context in which it has
arisen, incidental but inseparable issues do arise: Wide expansion but how far
wide? Should such wide expansion be not subject to certain wise limitations?
True, the width of expansion and the wisdom of limitations both have to be
spelled out from Article 12 itself and the fundamentals of constitutional
jurisprudence.
We now
deal with a series of decisions wherein tests were propounded, followed (also
expanded) and applied to different entities so as to find out whether they
satisfied the test of being 'the State'.
A
review of judicial opinion Though judge-made law is legend on the issue, we
need not peep too much deep in the past unless it becomes necessary to have a
glimpse of a few illuminating points thereat. It would serve our purpose to
keep ourselves confined, to begin with, to discerning the principles laid down
in Rajasthan State Electricity Board, Jaipur Khalid Mujib Sehravardi and Ors.
etc. (1981) 1 SCC 722 and Som which have come to be known as landmarks on the
State conceptualisation . Out of these five decisions, R.D. Shetty and Som Prakash
are three-Judges Bench decisions; the other 3 are each by Constitution Bench of
five-Judges.
The
Constitution Bench decision in Rajasthan State Electricity Board (RSEB)'s case
was delivered by a majority of 4:1.
V. Bhargava,
J. spoke for himself and K. Subba Rao, C.J. and M. Shelat and G.K. Mitter, JJ.
J.C. Shah, J. delivered his dissenting opinion. We will refer to majority
opinion only. The Court quoted the interpretation placed by Ayyangar, J. from
the pronouncement of Uttar Pradesh and Anr. (1963) 1 SCR 778 that the words
'other authorities' employed in Article 12 are of wide amplitude and capable of
comprehending every authority created under a statute and though there is no characterisation
of the nature of the "authority" in the residuary clause of Article
12 it must include every authority set up under a statute for the purpose of
administering laws enacted by the Parliament or by the State including those
vested with the duties to make decisions in order to implement those laws. The
Court refused to apply the doctrine of ejusdem generis for interpretation of
the 'other authorities' in Article 12. "Other authorities" in Article
12 include, held the Court, "all constitutional or statutory authorities
on whom powers are conferred by law" without regard to the fact that some
of the powers conferred may be for the purpose of carrying on commercial activities
or promoting the educational and economic interests of the people. Regard must
be had
(i) not
only to the sweep of fundamental rights over the power of the authority,
(ii) but
also to the restrictions which may be imposed upon the exercise of certain
fundamental rights by the authority.
This
dual phase of fundamental rights would determine "authority".
Applying the test formulated by it to Rajasthan State Electricity Board, the
Court found that the Board though it was required to carry on some activities
of the nature of trade or commerce under the Electricity Supply Act, yet the
statutory powers conferred by the Electricity Supply Act on the Board included
power to give directions, the disobedience of which is punishable as a criminal
office and therefore the Board was an authority for the purpose of Part III of
the Constitution. 1 SCC 585 may not be of much relevance. The question posed
before the Court was not one referable to Article 12 of the Constitution. The
question was whether a prayer seeking issuance of a mandamus or an order in the
nature of mandamus could lie against a company incorporated under the Companies
Act wherein the Central and the State Governments held respectively 56 and 32
per cent shares. The two-Judge Bench of this Court held that the company was a
separate legal entity and could not be said to be either a government
Corporation or an industry run by or under the authority of the Union
Government. A mandamus lies to secure the performance of a public or statutory
duty in the performance of which the petitioner has a sufficient legal
interest. A mandamus can issue to an official or a society to compel him to
carry out the terms of the Statute under or by which the society is constituted
or governed and also to companies or Corporations to carry out duties placed on
them by the Statute authorizing their undertaking. A mandamus would also lie
against a company constituted by a Statute for the purpose of fulfilling public
responsibilities. The Court held that the company being a non- statutory body
with neither a statutory nor a public duty imposed on it by a Statute, a writ
petition for mandamus did not lie against it. The limited value of this
decision, relevant for our purpose, is that because a writ of mandamus can
issue against a body solely by this test it does not become 'State' within the
meaning of Article 12.
Raghuvanshi
and another (supra), question arose whether Oil and Natural Gas Commission, the
Industrial Finance Corporation and Life Insurance Corporation are 'authorities'
within the meaning of Article
12.
The case was decided by a majority of 4:1. A.N. Ray, CJ speaking for himself
and on behalf of Y.V. Chandrachud and A.C.
Gupta,
JJ. held that all the three were statutory Corporations, i.e., given birth by
Statutes. The circumstance that these statutory bodies were required to carry
on some activities of the nature of trade or commerce did not make any
difference. The Life Insurance Corporation is
(i) an
agency of the Government
(ii) carrying
on the exclusive business of Life Insurance (i.e. in monopoly), and
(iii) each
and every provision of the Statute creating it showed in no uncertain terms
that the Corporation is the voice and the hands of the Central Government.
The
Industrial Financial Corporation is in effect managed and controlled by the
Central Government, citizens cannot be its shareholder. ONGC
(i) is
owned by the Government,
(ii) is
a statutory body and not a company and
(iii) has
the exclusive privilege of extracting petroleum. Each of the three,
respectively under the three Acts under which they are created, enjoy power to
do certain acts and to issue directions obstruction in or breach whereof is
punishable as an offence.
These
distinguish them from a mere company incorporated under the Indian Companies
Act. The common features of the three are
(i) rules
and regulations framed by them have the force of law,
(ii) the
employees have a statutory status, and
(iii) they
are entitled to declaration of being in employment when the dismissal or removal
is in contravention of statutory provisions. The learned Chief Justice added,
by way of abundant caution, that these provisions did not however make the
employees as servants of the Union or the State though the three statutory
bodies are authorities within the meaning of Article 12 of the Constitution.
Mathew,
J. recorded his separate concurring opinion. As to ONGC he hastened to arrive
at a conclusion that the Commission was invested with sovereign power of the
State and could issue binding directions to owners of land and premises, not to
prevent employees of the Commission from entering upon their property if the
Commission so directs. Disobedience of its directions is punishable under the
relevant provisions of the Indian Penal Code as the employees are deemed to be
public servants. Hence the Commission is an authority. As to the other two
Corporations, viz., LIC and IFC, Mathew, J. entered into a short question and
began by observing that in recent years the concept of State has undergone
drastic change.
"Today
State cannot be conceived of simply as a coercive machinery wielding the
thunderbolt of authority". Having reviewed some decisions of United States
and English decisions and some other authorities, he laid down certain
principles with which we will deal with a little later and at appropriate
place. He observed that institutions engaged in matters of high public interest
or performing public functions are, by virtue of the nature of the function
performed by them, governmental agencies. He noticed the difficulty in
separating vital government functions from non-governmental functions in view
of the contrast between governmental activities which are private and private
activities which are governmental. For holding Life Insurance Corporation "the
State" he relied on the following features :
(i) the
Central Government has contributed the original capital of the Corporation,
(ii) part
of the profit of the Corporation goes to Central Government,
(iii) the
Central Government exercises control over the policy of the Corporation,
(iv) the
Corporation carries on a business having great public importance, and
(v) it
enjoys a monopoly in the business.
As to
Industrial Financial Corporation he relied on the circumstances catalogued in
the judgment of A.N. Ray, J. The common feature of the two Corporations was
that they were instrumentalities or agencies of the State for carrying on
business which otherwise would have been run by the State departmentally and if
the State had chosen to carry on these businesses through the medium of
government departments, there would have been no question that actions of these
departments would be "state actions". At the end Mathew, J. made it
clear that he was expressing no opinion on the question whether private Corporations
or other like organizations though they exercise power over their employees
which might violate their fundamental rights would be the State within the
meaning of Article 12. What is 'state action' and how far the concept of 'state
action' can be expanded, posing the question, Mathew J. answered "..it is
against State action that fundamental rights are guaranteed. Wrongful
individual acts unsupported by State authority in the shape of laws, customs,
or judicial or executive proceeding are not prohibited. Articles 17, 23 and 24
postulate that fundamental rights can be violated by private individuals and
that the remedy under Article 32 may be available against them. But by and
large, unless an act is sanctioned in some way by the State, the action would not
be State action. In other words, until some law is passed or some action is
taken through officers or agents of the State, there is no action by the
State." So also commenting on the relevance of 'state help' and 'state
control' as determinative tests, Mathew, J. said "It may be stated
generally that State financial aid alone does not render the institution
receiving such aid a state agency. Financial aid plus some additional factor
might lead to a different conclusion. A mere finding of state control also is
not determinative of the question, since a state has considerable measure of
control under its police power over all types of business operations." Alagiriswami,
J. recorded a dissenting opinion which however we propose to skip over. It is
pertinent to note that the dispute in employees were held entitled to a
declaration of being in employment when their dismissal or removal was in
contravention of statutory provisions; the rules and regulations framed by
corporations or commission were found having the force of law, being delegated
legislation and these statutory bodies were held to be 'authorities' within the
meaning of Article 12.
Authority
of India & Ors. (supra), the dispute related to trends within the domain of
administrative law. A question arose whether International Airport Authority of
India (IA, for short) was within the scope of 'other authorities' in Article 12
so as to be amenable to Article 14 of the Constitution. P.N. Bhagwati, J. who
delivered the judgment for the three-Judge Bench stated the ratio of Rajasthan
State Electricity Boards case, in these words :
"The
ratio of this decision may thus be stated to be that a constitutional or
statutory authority would be within the meaning of the expression 'other
authorities', if it has been invested with statutory power to issue binding
directions to third parties, the disobedience of which would entail penal
consequence or it has the sovereign power to make rules and regulations having
the force of law".
He
then referred to what he termed as a 'broader test' laid down by Mathew, J. in Sukhdev
Singh's case and said that judgment by Mathew, J. provided 'one more test and
perhaps a more satisfactory one' for determining whether a statutory
corporation, body or other authority falls within the definition of 'the State'
and the test is___"If a statutory corporation, body or other authority is
an instrumentality or agency of government, it would be an authority and
therefore 'the State' within the meaning of the expression in Article 12."
Having minutely examined the provisions of the International Airport Authority
Act, 1971 he found out the following features of IA :-
(i)
The Chairman and Members are all persons nominated by the Central Government
and Central Government has power to terminate the appointment or remove them;
(ii)
The Central Government is vested with the power to take away the management of
any airport from the IA;
(iii)
The Central Government has power to give binding directions in writing on
questions of policy;
(iv)
The capital of IA needed for carrying out its functions is wholly provided by
Central Government;
(v)
The balance of net profit made by IA, after making certain necessary
provisions, does not remain with the IA and is required to be taken over to the
Central Government;
(vi)
The financial estimates, expenditure and programme of activities can only be
such as approved by Central Government;
(vii)
The Audit Accounts and the Audit Report of IA, forwarded to the Central
Government, are required to be laid before both Houses of Parliament;
(viii)
It was a department of the Central Government along with its properties,
assets, debts, obligations, liabilities, contracts, cause of action and pending
litigation taken over by the IA;
(ix)
IA was charged with carrying out the same functions which were being carrying
out by the Central Government;
(x)
The employees and officials of IA are public servants and enjoy immunity for
anything done or intended to be done, in good faith, in pursuance of the Act or
any rules or regulations made by it;
(xi)
IA is given (delegated) power to legislate and contravention of certain
specified regulations entails penal consequences. Thus, in sum, the IA was held
to be an instrumentality or agency of the Central Government falling within the
definition of the State both on the narrower view propounded in the judgment of
A.N. Ray, CJ and broader view propounded by Mathew, J. in Sudhdev Singh's case.
Ajay Hasia
etc. v. Khalid Mujib Sehravardi and Ors. etc. (supra), is a Constitution Bench
judgment wherein P.N. Bhagwati, J.
spoke
for the Court. The test which he had laid down in Ramanna's case were
summarized by him as six in number and as under:
"1.
One thing is clear that if the entire share capital of the Corporation is held
by Government it would go a long way towards indicating that the Corporation is
an instrumentality or agency of Government.
2.
Where the financial assistance of the State is so much as to meet almost entire
expenditure of the corporation, it would afford some indication of the
corporation being impregnated with governmental character.
3. It
may also be a relevant factor.whether the corporation enjoys monopoly status
which is the State conferred or State protected.
4.
Existence of "deep and pervasive State control may afford an indication
that the corporation is a State agency or instrumentality".
5. If
the functions of the Corporation of public importance and closely related to
government functions, it would be a relevant factor in classifying the
corporation as an instrumentality or agency of Government.
6.
"Specifically, if a department of Government is transferred to a
corporation, it would be a strong factor supportive of this inference" of
the corporation being an instrumentality or agency of Government." The
footnote to the tests, as put by him, is "if on a consideration of all
these relevant factors it is found that the corporation is an instrumentality
or agency of government, it would, be an authority, and therefore, 'the State'
within the meaning of Article 12.
Bhagwati,
J. placed a prologue to the above said tests emphasizing the need to use care
and caution, "because while stressing the necessity of a wide meaning to
be placed on the expression "other authorities", it must be realized
that it should not be stretched so far as to bring in every autonomous body
which has some nexus with the Government within the sweep of the expression. A
wide enlargement of the meaning must be tempered by a wise limitation." In
Ajay Hasia, the 'authority' under consideration was a society registered under
the Jammu & Kashmir Registration of Societies Act, 1898, administering and
managing the Regional Engineering College, Srinagar. The College was sponsored
by the Government of India. The prominent features of the society indicated
complete financing and financial control of the Government, complete
administrative control over conducting of the affairs of the society and
administration and assets of the College being taken over by the State
Government with the prior approval of the Central Government.
These
are some of the material features. Some of the observations made by the Court
during the course of its judgment are pertinent and we proceed to notice them
quickly. The society could not be equated with the Government of India or the
Government of any State nor could it be said to be 'local authority', and
therefore, should have come within the expression of 'other authorities' to be
'the State'.
The
Government may act through the instrumentality or agency of natural persons or
it may employ the instrumentality or agency of juridical persons to carry out
its functions. With the enlargement of governmental activities, specially those
in the field of trade and commerce and welfare, corporation is most resourceful
legal contrivance resorted to frequently by the Government. Though a distinct
juristic entity came into existence because of its certain advantages in the
field of functioning over a department of the Government but behind the formal
ownership cast in the corporate mould, the reality is very much the deeply
pervasive presence of the Government. It is really the Government which acts
through the instrumentality or agency of the Corporation and the juristic veil
of corporate personality is worn for the purpose of convenience of management
and administration which cannot be allowed to obliterate the true nature of the
reality behind which is the Government.
Dealing
at length with the corporate contrivance, the Court summed up its conclusion by
saying that if a Corporation is found to be a mere agency or surrogate of the
Government, 3 tests being satisfied viz.,
(i) in
fact, owned by the Government,
(ii) in
truth, control by the Government, and
(iii) in
effect, an incarnation of the Government, then the Court would hold the
Corporation to be Government, and therefore, subject to constitutional
limitations including for enforcement of fundamental rights. The Court went on
to say that where a Corporation is an instrumentality or agency of the
Government, it must be held to be an 'authority' for Article 12.
Here
itself we have few comments to offer. Firstly, the distinction between
'instrumentality and agency' on the one hand, and 'authority (for the purpose
of 'other authorities')' on the other, was totally obliterated. In our opinion,
it is one thing to say that if an entity veiled or disguised as a Corporation
or a society or in any other form is found to be an instrumentality or agency
of the State then in that case it will be the State itself in narrower sense
acting through its instrumentality or agency and therefore, included in 'the
State' in the wider sense for the purpose of Article 12. Having found an entity
whether juristic or natural to be an instrumentality or agency of the State, it
is not necessary to call it an 'authority'. It would make a substantial
difference to find whether an entity is an instrumentality or agency or an
authority. Secondly, Ajay Hasia was the case of a registered society; it was
not an appropriate occasion for dealing with corporations or entities other than
society. On the inferences drawn by reading of the Memorandum of Association of
the society and rules framed thereunder, and subjecting such inferences to the
tests laid down in the decision itself, it was found that the society was an
instrumentality or agency of the State and on tearing the veil of society what
was to be seen was the State itself though in disguise. It was not thereafter
necessary to hold the society an 'authority' and proceed to record "that
the society is an instrumentality or the agency of the State and the Central
Government and it is an 'authority' within the meaning of Article 12",
entirely obliterating, the dividing line between 'instrumentality or agency of
the State' and 'other authorities'. This has been a source of confusion and
misdirection in thought process as we propose to explain a little later.
Thirdly, though six tests are laid down but there is no clear indication in the
judgment whether in order to hold a legal entity the State, all the tests must
be answered positively and it is the cumulative effect of such positive answers
which will solve the riddle or positive answer to one or two or more tests
would be enough to find out a solution. It appears what the court wished was
reaching a final decision on an overall view of the result of the tests.
Compare this with what was said by Bhagwati, J. in Ramanna's case. We have
already noticed that in Ajay Hasia, Bhagwati, J. has in his own words
summarized the test laid down by him in Ramanna's case. In Ramanna's case he
had said that the question whether a corporation is governmental
instrumentality or agency would depend on a variety of factors which defy
exhaustive enumeration and moreover even amongst these factors described in Ramanna's
case "the Court will have to consider the cumulative effect of these
various factors and arrive at its decision." "It is the aggregate or
cumulative effect of all the relevant factors that is controlling".
Criticism
of too broad a view taken of the scope of the State under Article 12 in Ramanna's
case invited some criticism which was noticed in Som Prakash Rekhi's case
(infra). It was pointed out that the observations in Ramanna's case spill over
beyond the requirements of the case and must be dismissed as obiter; that IA is
a Corporation created by a statute and there was no occasion to go beyond the
narrow needs of the situation and expand the theme of the State in Article 12 vis--vis
government companies, registered society, and what not; and that there was
contradiction between Sukhdev Singh's case and Ramanna's case.
On
13.11.1980, the Constitutional Bench presided over by Y.V. Chandrachud, C.J.
and consisting of P.N. Bhagwati, V.R. Krishna Iyer, S. Murtaza Fazal Ali and
A.D. Koshal, JJ. delivered the judgment in Ajay Hasia's case, speaking through
P.N. Bhagwati, J..
It is
interesting to note that on the same day another three-Judges Bench consisting
V.R. Krishna Iyer, O. Chinnappa Reddy and R.S. Pathak, JJ. delivered judgment
in Som Prakash Rekhi v. Union of India and another (supra). V.R. Krishna Iyer,
J. speaking for himself and O. Chinnappa Reddy, J. delivered the majority
opinion.
R.S. Pathak,
J. delivered a separate opinion.
The
Court in Som Parkash Rekhi v. Union of India and another (supra), was posed
with the question __ whether Bharat Petroleum Corporation Ltd., a statutory
corporation, was an 'authority', and therefore 'the State' under Article 12.
Certain observations made by Krishna Iyer, J. are pertinent. To begin with, he
said, "any authority under control of the Government of India comes within
the definition." While dealing with the corporate personality, it has to
be remembered that "while the formal ownership is cast in the corporate
mould, the reality reaches down to State control". The core fact is that
the Central Government chooses to make over, for better management, its own
property to its own offspring. A Government Company is a mini-incarnation of
Government itself, made up of its blood and bones and given corporate shape and
status for defined objectives and not beyond. The device is too obvious for
deception.
A
Government Company though, is but the alter ego of the Central Government and
tearing of the juristic veil worn, would bring out the true character of the
entity being 'the State'. Krishna Iyer, J. held it to be immaterial whether the
Corporation is formed by a statute or under a statute, the true test is
functional. "Not how the legal person is born but why it is created."
He further held that both the things are essential:
(i) discharging
functions or doing business as the proxy of the State by wearing the corporate
mask, and
(ii) an
element of ability to affect legal relations by virtue of power vested in it by
law.
These
tests, if answered in positive, would entail the Corporation being an
instrumentality or agency of the State. What is an 'authority'? Krishna Iyer,
J. defined 'authority' as one which in law belongs to the province of power and
the search here must be to see whether the Act vests authority, as agent or
instrumentality of the State, to affect the legal relations of oneself or
others. He quoted the definition of 'authority' from the Law Lexicon by P. Ramnath
Iyer to say "Authority is a body having jurisdiction in certain matters of
a public nature" and from Salmond's Jurisprudence, to say that the
"ability conferred upon a person by the law to alter, by his own will
directed to that end, the rights, duties, liabilities or other legal relations,
either of himself or of other persons,' must be present ab extra to make a
person an 'authority'." He held BPL to be "a limb of Government and
agency of the State, a vicarious creature of statute", because of these
characteristics, which he found from the provisions of the Act which created it
and other circumstances, viz.,
(i) it
is not a mere company but much more than that,
(ii) it
has a statutory flavour in its operations and functions, in its powers and
duties and in its personality itself,
(iii) it
is functionally and administratively under the thumb of Government; and
(iv) the
Company had stepped into the shoes of the executive power of the State and had
unique protection, immunity and powers. In conclusion Krishna Iyer, J. held
that the case of BPL was a close parallel to the Airport Authority's case (Ramanna's
case) excepting that Airport Authority is created by a statute while BPL is
recognized by and clothed with rights and duties by the statute.
Krishna
Iyer, J. having culled out the several tests from Ramanna's case added a
clinching footnote the finale is reached when the cumulative effect of all the
relevant factors above set out is assessed and once the body is found to be an
instrumentality or agency of Government, the further conclusion emerges that it
is 'the State' and is subject to the same constitutional limitations as
Government and it is this divagation which explains the ratio of Ramanna's
case.
The
three-Judges Bench in The Workmen, Food Corporation Food Corporation of India to be an instrumentality of the
State covered by the expression 'other authority' in Article 12. It was found :
(i)
FCI was set up under the Food Corporation Act, 1964
(ii) initial
capital was provided by Central Government and capital could be increased in
such manner as the government may determine;
(iii) the
Board of Directors in whom the management of the Corporation is to vest shall
act according to instructions on question of policy given by the Central
Government;
(iv) the
annual net profit of FCI is to be paid to the Central Government;
(v) annual
report of its working and affairs is to be laid before the Houses of
Parliament;
(vi) statutory
power conferred to make rules and regulations for giving effect to the
provisions of the parent act as also to provide for service matters relating to
officers and employees.
The Mysore
Paper Mills Ltd. has been held by a two-Judges Officers Association and Anr. JT
2002 (1) SC 61, to be an instrumentality and agency of the State Government,
the physical form of company being a mere cloak or cover for the Government.
What
is significant in this decision is that the conclusion whether an independent
entity satisfies the test of instrumentality or agency of the government is not
whether it owes its origin to any particular Statute or Order but really
depends upon a combination of one or more of the relevant factors, depending
upon the essentiality and overwhelming nature of such factors in identifying
the real source of governing power, if need be, by piercing the corporate veil
of the entity concerned.
What
is 'Authority' and when includible in 'other authorities', re: Article 12 We
have, in the earlier part of this judgment, referred to the dictionary meaning
of 'authority', often used as plural, as in Article 12 viz. 'other
authorities'. Now is the time to find out the meaning to be assigned to the
term as used in Article 12 of the Constitution.
A
reference to Article 13(2) of the Constitution is apposite. It provides ___
"The State shall not make any law which takes away or abridges the right
conferred by this part and any law made in contravention of this clause shall,
to the extent of the contravention, be void". Clause (3) of Article 13
defines 'law' as including any Ordinance, order, bye-law, rule, regulation,
notification, custom or uses having in the territory of India the force of law.
We have also referred to the speech of Dr. B.R. Ambedkar in Constituent
Assembly explaining the purpose sought to be achieved by Article 12. In RSEB's
case, the majority adopted the test that a statutory authority "would be
within the meaning of 'other authorities' if it has been invested with
statutory power to issue binding directions to the parties, disobedience of
which would entail penal consequences or it has the sovereign power to make
rules and regulations having the force of law". In Sukhdev Singh's case,
the principal reason which prevailed with A.N. Ray, CJ for holding ONGC, LIC
and IFC as authorities and hence 'the State' was that rules and regulations
framed by them have the force of law. In Sukhdev Singh's case, Mathew J. held
that the test laid down in RSEB's case was satisfied so far as ONGC is
concerned but the same was not satisfied in the case of LIC and IFC and,
therefore, he added to the list of tests laid down in RSEB's case, by observing
that though there are no statutory provisions, so far as LIC and IFC are
concerned, for issuing binding directions to third parties, the disobedience of
which would entail penal consequences, yet these corporations (i) set up under
statutes, (ii) to carry on business of public importance or which is
fundamental to the life of the people ___ can be considered as the State within
the meaning of Article 12. Thus, it is the functional test which was devised
and utilized by Mathew J. and there he said, "the question for
consideration is whether a public corporation set up under a special statute to
carry on a business or service which Parliament thinks necessary to be carried
on in the interest of the nation is an agency or instrumentality of the State
and would be subject to the limitations expressed in Article 13(2) of the
Constitution. The State is an abstract entity. It can only act through the
instrumentality or agency of natural or juridicial persons. Therefore, there is
nothing strange in the notion of the State acting through a corporation and
making it an agency or instrumentality of the State". It is pertinent to
note that functional tests became necessary because of the State having chosen
to entrust its own functions to an instrumentality or agency in absence whereof
that function would have been a State activity on account of its public
importance and being fundamental to the life of the people.
The
philosophy underlying the expansion of Article 12 of the Constitution so as to
embrace within its ken such entitites which would not otherwise be the State
within the meaning of Article 12 of the Constitution has been pointed out by
the eminent jurist H.M. Seervai in Constitutional Law of India (Silver Jubilee
Edition, Vol.1).
"The
Constitution should be so interpreted that the governing power, wherever
located, must be subjected to fundamental constitutional limitations. . . . . .
. . . . . . . Under Article 13(2) it is State action of a particular kind that
is prohibited. Individual invasion of individual rights is not, generally
speaking, covered by Article 13(2). For, although Articles 17, 23 and 24 show
that fundamental rights can be violated by private individuals and relief
against them would be available under Article 32, still, by and large, Article
13(2) is directed against State action. A public corporation being the creation
of the State, is subject to the same constitutional limitations as the State
itself. Two conditions are necessary, namely, that the Corporation must be
created by the State and it must invade the constitutional rights of
individuals"(Para 7.54). "The line of reasoning
developed by Mathew J. prevents a large-scale evasion of fundamental rights by
transferring work done in Govt. Departments to statutory Corporations, whilst
retaining Govt. control. Company legislation in India permits tearing of the corporate veil in certain cases and
to look behind the real legal personality. But Mathew J. achieved the same
result by a different route, namely, by drawing out the implications of Article
13(2)" (Para 7.57 ibid).
The
terms instrumentality or agency of the State are not to be found mentioned in
Article 12 of the Constitution. Nevertheless they fall within the ken of
Article 12 of the Constitution for the simple reason that if the State chooses
to set up an instrumentality or agency and entrusts it with the same power,
function or action which would otherwise have been exercised or undertaken by
itself, there is no reason why such instrumentality or agency should not be
subject to same constitutional and public law limitations as the State would
have been. In different judicial pronouncements, some of which we have
reviewed, any company, corporation, society or any other entity having a
juridical existence if it has been held to be an instrumentality or agency of
the State, it has been so held only on having found to be an alter ego, a
double or a proxy or a limb or an off-spring or a mini-incarnation or a
vicarious creature or a surrogate and so on __ by whatever name called __ of
the State. In short, the material available must justify holding of the entity wearing
a mask or a veil worn only legally and outwardly which on piercing fails to
obliterate the true character of the State in disguise. Then it is an
instrumentality or agency of the State.
It is
this basic and essential distinction between an 'instrumentality or agency' of
the State and 'other authorities' which has to be borne in mind. An authority
must be an authority sui juris to fall within the meaning of the expression
'other authorities' under Article 12. A juridical entity, though an authority,
may also satisfy the test of being an instrumentality or agency of the State in
which event such authority may be held to be an instrumentality or agency of
the State but not the vice versa.
We sum
up our conclusions as under:-
(1)
Simply by holding a legal entity to be an instrumentality or agency of the
State it does not necessarily become an authority within the meaning of 'other
authorities' in Article 12. To be an authority, the entity should have been
created by a statute or under a statute and functioning with liability and
obligations to public.
Further,
the statute creating the entity should have vested that entity with power to
make law or issue binding directions amounting to law within the meaning of
Article 13(2) governing its relationship with other people or the affairs of
other people __ their rights, duties, liabilities or other legal relations. If
created under a statute, then there must exist some other statute conferring on
the entity such powers. In either case, it should have been entrusted with such
functions as are governmental or closely associated therewith by being of
public importance or being fundamental to the life of the people and hence
governmental.
Such
authority would be the State, for, one who enjoys the powers or privileges of
the State must also be subjected to limitations and obligations of the State.
It is this strong statutory flavour and clear indicia of power __
constitutional or statutory, and its potential or capability to act to the
detriment of fundamental rights of the people, which makes it an authority;
though in a given case, depending on the facts and circumstances, an authority
may also be found to be an instrumentality or agency of the State and to that
extent they may overlap. Tests 1, 2 and 4 in Ajay Hasia enable determination of
Governmental ownership or control. Tests 3, 5 and 6 are 'functional' tests. The
propounder of the tests himself has used the words suggesting relevancy of
those tests for finding out if an entity was instrumentality or agency of the State.
Unfortunately
thereafter the tests were considered relevant for testing if an authority is
the State and this fallacy has occurred because of difference between
'instrumentality and agency' of the State and an 'authority' having been lost
sight of sub-silentio, unconsciously and un-deliberated. In our opinion, and
keeping in view the meaning which 'authority' carries, the question whether an
entity is an 'authority' cannot be answered by applying Ajay Hasia tests.
(2)
The tests laid down in Ajay Hasia's case are relevant for the purpose of
determining whether an entity is an instrumentality or agency of the State.
Neither all the tests are required to be answered in positive nor a positive
answer to one or two tests would suffice. It will depend upon a combination of
one or more of the relevant factors depending upon the essentiality and
overwhelming nature of such factors in identifying the real source of governing
power, if need be by removing the mask or piercing the veil disguising the
entity concerned. When an entity has an independent legal existence, before it
is held to be the State, the person alleging it to be so must satisfy the Court
of brooding presence of government or deep and pervasive control of the
government so as to hold it to be an instrumentality or agency of the State.
CSIR,
if 'the State'? Applying the tests formulated hereinabove, we are clearly of
the opinion that CSIR is not an 'authority' so as to fall within the meaning of
expression 'other authorities' under Article 12. It has no statutory flavour __
neither it owes its birth to a statute nor is there any other statute
conferring it with such powers as would enable it being branded an authority.
The indicia of power is absent. It does not discharge such functions as are
governmental or closely associated therewith or being fundamental to the life
of the people.
We may
now examine the characteristics of CSIR. On a careful examination of the
material available consisting of the memorandum of association, rules and
regulations and bye-laws of the society and its budget and statement of
receipts and outgoings, we proceed to record our conclusions. The Government
does not hold the entire share capital of CSIR. It is not owned by the
Government. Presently, the Government funding is about 70% and grant by
Government of India is one out of five categories of avenues to derive its
funds.
Receipts
from other sources such as research, development, consultation activities, monies
received for specific projects and job work, assets of the society, gifts and
donations are permissible sources of funding of CSIR without any prior
permission/consent/sanction from the Government of India. Financial assistance
from the Government does not meet almost all expenditure of the CSIR and
apparently it fluctuates too depending upon variation from its own sources of
income. It does not enjoy any monopoly status, much less conferred or protected
by Government. The governing body does not consist entirely of Government
nominees. The membership of the society and the manning of its governing body -
both consist substantially of private individuals of eminence and independence
who cannot be regarded as hands and voice of the State. There is no provision
in the rules or the byelaws that the government can issue such directives as it
deems necessary to CSIR and the latter is bound to carry out the same. The
functions of the CSIR cannot be regarded as governmental or of essential public
importance or as closely related to governmental functions or being fundamental
to the life of the people or duties and obligations to public at large. The
functions entrusted to CSIR can as well be carried out by any private person or
organization. Historically it was not a department of government which was
transferred to CSIR. There was a Board of Scientific and Industrial Research
and an Industrial Research Utilisation Committee.
The
CSIR was set up as a society registered under the Societies Registration Act,
1860 to coordinate and generally exercise administrative control over the two
organizations which would tender their advice only to CSIR. The membership of
the society and the governing body of the council may be terminated by the
President not by the Government of India. The governing body is headed by the
Director General of CSIR and not by the President of Society (i.e. the Prime
Minister). Certainly the board and the committee, taken over by CSIR, did not
discharge any regal, governmental or sovereign functions. The CSIR is not the
offspring or the blood and bones or the voice and hands of the government. The
CSIR does not and cannot make law.
However,
the Prime Minister of India is the President of the society. Some of the
members of the society and of the governing body are persons appointed
ex-officio by virtue of their holding some office under the Government also.
There is some element of control exercised by the government in matters of
expenditure such as on the quantum and extent of expenditure more for the
reason that financial assistance is also granted by the Government of India and
the later wishes to see that its money is properly used and not misused. The
President is empowered to review, amend and vary any of the decisions of the
governing body which is in the nature of residual power for taking corrective
measures vesting in the President but then the power is in the President in
that capacity and not as Prime Minister of India. On winding up or dissolution
of CSIR any remaining property is not available to members but 'shall be dealt
with in such manner as Government of India may determine'. There is nothing
special about such a provision in Memorandum of Association of CSIR as such a
provision is a general one applicable to all societies under Section 14 of the
Societies Registration Act, 1860.
True
that there is some element of control of the government but not a deep and
pervasive control. To some extent, it may be said that Government's presence or
participation is felt in the society but such presence cannot be called a
brooding presence or the overlordship of government. We are satisfied that the
tests in Ajay Hasia's case are not substantially or on essential aspects even
satisfied to call CSIR an instrumentality or agency of the State. A mere
governmental patronage, encouragement, push or recognition would not make an
entity 'the State'.
On
comparison, we find that in substance CSIR stands on a footing almost similar
to the Institute of Constitutional and Union of India & Ors., (1988) 1 SCC
236) and National Council of NCERT, (1991) 4 SCC 578), and those cases were
correctly decided.
Strong
reliance was placed by the learned counsel for the appellants on a notification
dated 31.10.1986 issued in exercise of the powers conferred by sub-Section (2)
of Section 14 of the Administrative Tribunals Act, 1985 whereby the provisions
of sub- Section (3) of Section 14 of the said Act have been made applicable to
the Council of Scientific and Industrial Research, "being the society
owned or controlled by government". On point of fact we may state that
this notification, though of the year 1986, was not relied on or referred to in
the pleadings of the appellants. We do not find it mentioned anywhere in the
proceedings before the High Court and not even in the SLP filed in this Court.
Just during the course of hearing this notification was taken out from his
brief by the learned counsel and shown to the Court and the opposite counsel.
It was almost sprung as a surprise without affording the opposite party an
opportunity of giving an explanation. The learned Attorney General pointed out
that the notification was issued by Ministry of Personnel, Public Grievances
and Pensions (Department of Personnel and Training) and he appealed to the
Court not to overlook the practical side in the working of the government where
at times one department does not know what the other department is doing. We do
not propose to enter into a deeper scrutiny of the notification. For our
purpose, it would suffice to say that Section 14 of the Administrative
Tribunals Act, 1985, and Article 323A of the Constitution to which the Act owes
its origin, do not apparently contemplate a society being brought within the
ambit of the Act by a notification of Central Government. Though, we guardedly
abstain from expressing any opinion on this issue as the present one cannot be
an occasion for entering into that exercise. Moreover, on the material
available, we have recorded a positive finding that CSIR is not a society
"owned or controlled by Government". We cannot ignore that finding
solely by relying on the contents of the notification wherein we find the user
of relevant expression having been mechanically copied but factually
unsupportable.
For
the foregoing reasons, we are of the opinion that Council for Scientific and
Industrial Research (CSIR) is not the State within the meaning of Article 12 of
the Constitution. Sabhajit Tewary's case was correctly decided and must hold
the field. The High Court has rightly followed the decision of this Court in Sabhajit
Tewary. The appeal is liable to be dismissed.
J.
( R.C.
Lahoti ) .J.
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